The prospect of turbulence in the stock market has revived the debate among investors about the importance of asset allocation. The sharp rally in the equity markets post the Union Budget on February 29 that saw the Nifty move up 21% had prompted investors to exit gold and invest aggressively in equities. But, with market outlook turning hazy, gold is making a comeback that could result in these investors’ portfolio languishing.

On Friday, the Nifty fell 182 points, or 2.2%, while gold rose over 5%. Asset allocation is based on the premise that every year a different asset performs well. Simply put, asset allocation is a strategy that decides how your total wealth is divided among various asset classes such as stocks, bonds, real estate and gold.

“Asset allocation is determined based on your lifestyle, goals and risk appetite. Every investor should create that and stick to it in a disciplined manner,” says Hrishikesh Parandekar, CEO, Ambit NBFC and Private Wealth. Based on this, wealth managers create asset allocations for each investor. It will vary from one individual to another.

For instance, an investor holding an Rs 1 crore portfolio has about 50% allocated to equities, 50% in debt and zero to gold. Due to the rise in stock indices, his equity allocation would have risen to 60%.

Now, if he did not bring back the equity exposure to 50%, the sharp fall in equities due to Brexit will result in a loss to his portfolio. “Asset allocation is sacrosanct to any HNI’s core portfolio. One needs to review it once every month, or if the portfolio changes by more than 5% due to any event,” says Munish Randev, chief investment officer, Waterfield Advisors.

“It is difficult for any individual to know which asset class goes up when or to time the markets and, hence, sticking to the recommended asset allocation gives you the best risk adjusted returns,” says Prateek Pant, co-founder & head of products & solutions, Sanctum Wealth. He believes over the long term, 90% of the returns come from proper asset allocation.